TAIPEI – Taiwan Semiconductor Manufacturing Company (TSMC) has raised its annual revenue forecast and announced an increase in capital expenditure for 2026 as the world's largest contract manufacturer of advanced AI chips struggles to meet the skyrocketing demand for its products.

The optimistic outlook follows TSMC’s impressive first-quarter results, where the company saw a 58% year-on-year profit surge, reaching a record T$572.5 billion ($18.2 billion). This growth comfortably exceeded market expectations and marked TSMC’s eighth consecutive quarter of double-digit growth.

During an analysts’ call, Chief Executive C.C. Wei noted that TSMC was taking a cautious approach due to ongoing macroeconomic uncertainties, particularly the tensions in the Middle East. Despite these concerns, Wei emphasized that the demand for AI-related products remains “extremely robust,” suggesting that the company’s outlook remains unaffected by geopolitical issues.

“Our conviction in the multi-year AI megatrend remains high, and we believe semiconductor demand will remain fundamental,” said Wei.

TSMC now expects full-year revenue growth in U.S. dollar terms to exceed 30%, up from its earlier forecast of around 30%. The company also plans to increase its capital expenditure, which will likely be at the upper end of its earlier guidance of $52 billion to $56 billion.

Expanding 3-NM Production Capacity

To meet the increasing demand for advanced AI chips, TSMC is focusing on expanding its 3-nanometre (3-nm) wafer production capacity across Taiwan, the United States, and Japan. This expansion will enable the company to ramp up production over the next few years, with a planned focus on mass production in 2027 and 2028.

The U.S. expansion is part of a massive $165 billion investment in chip factories in Arizona. This investment aims to strengthen TSMC’s presence in the U.S. and ensure a steady supply of chips for the rapidly growing AI industry.

Ben Barringer, head of technology research at Quilter Cheviot, praised TSMC’s performance, noting, “We already knew strong revenue was there, but pleasingly, we are also seeing really strong margins and high utilization. Essentially, TSMC’s fabs are running hot, and the AI story just keeps delivering.”

For the current quarter, TSMC forecasts sales between $39 billion and $40.2 billion, compared to $30.1 billion in the same period last year and $35.9 billion in the first quarter.

Advanced 3-NM Chips Driving Growth

The company’s focus on advanced 3-nm chips is already yielding significant results. In the first quarter of 2026, sales of 3-nm chips accounted for 25% of TSMC's total revenue, a sharp increase from just 6% in the third quarter of 2023.

The demand for these high-performance chips, which are critical for AI workloads, has propelled TSMC to new heights. The company’s Taipei-listed shares have surged 35% year-to-date, and the stock closed at a record T$2,085 ahead of its earnings report. TSMC’s market capitalization now stands at nearly $1.7 trillion, almost double that of South Korean competitor Samsung Electronics.

Securing Production Materials Amid Global Tensions

Despite the booming demand for AI chips, TSMC is facing potential disruptions in the supply of critical production materials like helium and hydrogen due to the ongoing conflict in the Middle East. However, the company assured investors that it has safety stocks on hand and diversified sources from suppliers across multiple regions.

In addition to supply concerns, competition in the semiconductor industry is heating up. Elon Musk recently announced plans for Tesla to build an advanced AI chip complex in Austin, Texas, named “Terafab,” with Intel also joining the project. While Wei acknowledged the growing competition, he reiterated that TSMC remains confident in its technological leadership.

“We are very confident about our technology position,” Wei said. He also noted that it takes two to three years to establish a new semiconductor fabrication plant, meaning that new entrants like Tesla and Intel would still be customers of TSMC in the near term.

TSMC's impressive first-quarter performance, robust demand for AI chips, and strategic expansion plans have placed the company in an enviable position to ride the AI wave and maintain its leadership in the semiconductor industry.

-Reporting by Wen-Yee Lee, Faith Hung, and Ben Blanchard; Editing by Miyoung Kim and Edwina Gibbs/Reuters